1/20/2010 @ 11:30AM

What's Next For Health Care Companies?

Does the election of Republican Scott Brown to the very Massachusetts Senate seat once held by health care reform’s standard-bearer, the late Edward Kennedy, doom the Democrats’ effort to change the way medical insurance works?

ObamaCare’s fate isn’t quite sealed yet. But Richard Evans, 47, a former
Roche
executive and Sanford C. Bernstein analyst who now runs Sector & Sovereign, a New York health care analysis boutique that tries to wring financial bets out of political headwinds, is bullish on health insurance stocks, like
UnitedHealth
,
Aetna
and WellCare. But he’s steering clear of drug makers like
Pfizer
and
Merck
. (He recommends sub-sectors, not individual companies.)

The insurers are going to be boosted, he predicts, because of a longer flu season and because consumers are rushing to spend on health care in the fear that they might lose their jobs. Meanwhile, investors are underestimating the havoc that patent expirations are going to wreak on drug company margins.

Why listen to Evans? Back in November, as reform was passing the Senate and a victory seemed more likely, Evans issued a strongly worded note saying that the bill would fail. Many analysts at the time were recommending health insurers because there would be a relief rally when some bill finally passed.

“We no longer expect Congress to pass impactful health reform legislation this year, or even in this political cycle,” Evans wrote on Nov. 16. “Voter attitudes are shifting away from both Democrats and health reform; placing the considerable number of Dems from conservative states and districts in increasingly untenable positions.” He added: “For the time being, it’s simply over.”

Health care as a whole should continue to benefit, Evans says, because there is no way that a bill passes Congress now. Other people are arguing that the bill is doomed because Brown’s defeat of Martha Coakley removes the Democrats’s filibuster-proof majority of 60 votes. Evans calls this a “sideshow.” The real issue is the changing dynamics of Congress when a previously unknown state senator can unseat a Democrat who seemed a sure thing just weeks ago.

Evans notes that 39 House Democrats who voted yes hail from states Obama carried by 10% or less, Evans notes, and of the 18 Democratic Senate seats up in 2010, only 8 are considered solidly Democratic, as Coakley was just weeks ago. Six more seats are toss-ups, and two seem to be leaning Republican. He says he knew health reform was as good as dead in November, and he doesn’t see it coming back. “The only difference now,” he writes, “is that now we know who the killer is: voters.”